According to recent data, many people are discouraged by mortgages that they do not even try to get the loan to buy a home. These people may continue to rent and put off buying. CoreLogic economist Archana Pradhan explored what is going on with these would-be buyers. The mystery lies in the fact that credit requirements have tightened, but denial rates are dropping.
In 2014, there were about 4.6 million single-family purchase loan applications, up from just 3.6 million in 2011. However, it is still lower than the pre-recession 2005 of 11.7 million. 7.4 million single-family purchase loans did originate in 2005, and only 3.2 million did in 2014. According to Mortgage News Daily, the denial rate for purchase applications peaked in 2007 at 18.7 percent. It as 13.2 percent in 2014. Since credit standards are stricter today, it would make sense that the denial rate was higher recently compared to around 2005. However, this is not the case as many borrowers self side-line.
What indicates tightened credentials? The score for home-purchase originations has increased from roughly 700 in 2005 to almost 750 in 2015, according to Mortgage News Daily. It is now around 620-630.
“Thus, the observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity,” Pradham suggests.
Mortgage News Daily wrote that policy solutions should be different because credit tightening is not the issue. Lower credit standards will not help. Instead, consumer education about financing, lending, mortgages, and more would be helpful.
Have you been discouraged by mortgages? Perhaps being accepted to the loan would be easier than you think. Our agents at RE/MAX Paradise are happy to help you figure out financing your dream home in Miami, so contact us today!